The Shanghai Stock Exchange's general pledged-style reverse repurchase agreement GC004 dropped to as low as 0.01% during the trading session; industry insiders: the liquidity is quite ample entering April

Every reporter: Zhang Shoulin Every editor: Chen Junjie

On April 3, the Shanghai Stock Exchange's general pledged reverse repurchase GC004 closed at 0.965%, with an intraday low of 0.01%. This price is even lower than the overnight term interest rate. On the same day, the Shanghai Stock Exchange's GC001 reached an intraday low of 0.630%, closing at 0.995%, a decrease of 11.56% compared to the previous day. The Shenzhen Stock Exchange's R-001 dropped to 0.630% intraday, closing at 0.975%, a decrease of 11.36% compared to the previous day.

In fact, trading at an annualized yield of 0.01% results in a loss after deducting transaction fees. However, there are still people engaging in this losing business.

"I noticed this situation before; perhaps the clients doing this business simply do not understand the transaction fees," a seasoned private bond investment professional told the Daily Economic News reporter.

Overnight term general pledged reverse repurchase closing price falls below 1%

GC004 is a 4-day general pledged reverse repurchase from the Shanghai Stock Exchange. Taking the April 3 borrowing as an example, due to a three-day statutory holiday, the actual interest days for the borrowed funds are 6 days, resulting in an actual investment yield of 0.01% × 6/365 = 0.00016%. A certain brokerage's GC004 transaction fee is 0.004%, thus the investment result at a price of 0.01% is a loss rather than a gain.

Faced with such a low annualized yield, one would typically abandon the transaction. However, there have been transactions that clearly resulted in losses.

According to the trading situation of GC004 on April 3, close to the market close, starting at 15:27, multiple transactions were executed at a price of 0.01%, until close to 15:29, when the price began to rise, ultimately closing at 0.965%.

In fact, since April, the money market prices have been trending downward, with overnight term funding prices currently falling below 1%.

On April 3, GC001 closed at 0.995%, down from 1.125% the previous day. On April 3, R-001 closed at 0.975%, down from 1.1% the previous day.

The decline in funding prices indicates that market liquidity is relatively ample. The team of Chief Economist Mingming from CITIC Securities told reporters that entering April, the funding situation is quite loose; on one hand, the cross-month funding has ended, and the quarterly liquidity assessment for banks has concluded, resulting in relatively ample liabilities; on the other hand, April is often a small month for credit, and the annual special government bond issuance plan has yet to be announced, continuing the asset scarcity pattern in the bond market.

The smallest scale of open market operations since operational records began

The reporter noted that since entering April, as the demand for funds in the banking sector has decreased at the beginning of the month, liquidity in the funding market has become more ample, with the volume of open market reverse repurchase operations remaining below 1 billion yuan for consecutive days Wang Qing, Chief Macro Analyst at Dongfang Jincheng, analyzed that on April 1, the open market conducted a 500 million yuan 7-day reverse repurchase, which is the smallest recorded scale since reverse repos became a regular operation in 2015; on that day, 78.5 billion yuan of reverse repos were due, resulting in a net withdrawal of 78 billion yuan for the day.

Wang Qing judged that the direct reason for the central bank conducting the smallest scale 7-day reverse repurchase in over a decade on April 1 was due to the recent liquidity remaining in a stable yet slightly loose state, coupled with the liquidity being wide at the beginning of the month; at the same time, this also released a signal to guide market liquidity stability and avoid major market interest rates deviating excessively downward from the policy rate, which helps stabilize market expectations.

Overall, Wang Qing pointed out that the recent liquidity has remained in a stable yet slightly loose state mainly due to the central bank's large net injection of 1.9 trillion yuan in medium-term liquidity through a comprehensive use of MLF and outright reverse repos in January and February, as well as the relatively low net financing scale of government bonds in March; as the end of the month and quarter approaches, the central bank has increased short-term fund injections through pledged reverse repos, effectively smoothing out liquidity fluctuations. Wang Qing judged that in the context of heightened external uncertainties due to the evolution of the Middle East situation, the current domestic monetary policy will focus on maintaining ample liquidity and stabilizing market expectations. This may be a background for the liquidity not tightening but rather loosening at the end of the month and quarter.

Wang Qing reminded that it is worth noting that during the recent stable yet slightly loose liquidity process, the central bank net withdrew 250 billion yuan in medium-term liquidity in March, aiming to guide major market interest rates to fluctuate within a reasonable range around the policy rate. Therefore, it cannot be ruled out that the outright reverse repos in April will continue to implement net withdrawals, with the possibility of the average yields of major market interest rates such as DR007 and the 1-year interbank certificates of deposit (AAA-rated) stabilizing or slightly rising.

Wang Qing stated that since the end of February, the evolution of the Middle East situation has driven international oil prices to surge significantly, and in March, the overall price level in the domestic market showed a strong upward trend, which will also create certain disturbances to economic growth momentum. In the short term, as external uncertainties suddenly increase, domestic monetary policy will not only maintain ample market liquidity but may also temporarily tilt towards stabilizing prices, potentially delaying the timing of interest rate cuts and reserve requirement ratio reductions. If external shocks further disturb domestic economic growth, monetary policy will correspondingly increase the degree of moderate easing.

Daily Economic News